Pricing Agribusiness Risk

Our expertise and experience in pricing risk in agribusiness enterprises is central to our ability to advise on capital markets funding strategies.

Category: Current

Indonesian Palm Oil Sector Consolidation: A Wave of Consolidation To Come

Indonesian palm oil production assets have become too cheap: KLK’s unsolicited offer for MP Evans looks likely to change all that.

Above $550/mt FOB, or $770 CIF Rotterdam, the production of palm oil is a profitable business for commercially scaled and efficient Indonesian producers. At higher prices, palm oil production businesses are quite literally ‘money pumps’. The KLK bid for MP Evans will have jolted the investment community to take note that many quality names, like MP Evans, are or have been trading below replacement value. At the offer price for MP Evans, KLK could expect to earn a return of up to 16.5% on every hectare purchased. In an era of negative bond rates, considering that the megatrend of human population may push beyond 9bn to 12bn by the end of this century, noting that although slowing, the Chinese economy is now by some measures the largest in the world and still young, palm oil assets look anomalously cheap.

Please click to download: Indonesian Palm Oil Sector Consolidation

Cocoa – The Midas Commodity

For investors the cocoa value chain has provided some outstanding investment opportunities and as the demand for chocolate confectionery continues to grow in new markets, and to mould to shifting consumer tastes in the developed markets, further opportunities for wealth creation can be expected.

Hardman Agribusiness (HAB) estimates that the global cocoa derived consumer goods sector has a brand value of some $300bn, equal to 0.41% of global GDP. A review of the spread of this wealth effect suggests that there is scope for further significant growth in brand value, especially in the big emerging market economies.

We detail in this report the outstanding examples of Hotel Chocolat and Royce. Additionally, a growing group of developers of modern upstream cocoa production assets is assuming that tightening supply / demand tension will allow their projects to develop profitable and valuable production businesses, hoping that the ‘Midas Commodity’ effect will flow upstream as well as downstream.

Click for our report: Cocoa – The Midas Commodity

A Progressive Culture – ICCO World Cocoa Convention – Dominican Republic

Hardman Agribusiness presented at the ICCO World Cocoa Convention in Baravo, Dominican Republic, on 24th May, 2016.

Today 95% of the cocoa produced comes to the market thanks to the efforts of some 5 million subsistence smallholder farmers practising a form of agriculture that has changed little in centuries. Over many years, and continuing today, the downstream end of the cocoa value chain has instituted numerous initiatives to modernise farming practices with the goals of improving farmers’ lives and making cocoa production sustainable. The evidence that these initiatives have been successful, certainly in respect of the latter objective is slim. Dr Jean-Marc Anga, Executive Director of the International Cocoa Organisation (ICCO) speaking that the 3rd World Cocoa Convention in Bavaro, Dominican Republic observed that “the producers are the weakest link in the cocoa value chain”. Dr Anga noted that in 1960/61 cocoa produced globally averaged 0.29mt per hectare against 0.52mt in 2015. Progress, but not enough over 55 years. Today in parts of the Americas, innovative farmers are achieving up to 3.0mt/ha. Hardman Agribusiness reviewed the outlook for cocoa production in the Americas at the 3rd World Cocoa Convention in the presentation below.

Please click for our presentation: A Progressive Culture – Dominican Republic

Cocoa’s Latin Future – 2nd Cocoa Revolution Conference – Vietnam

Hardman Agribusiness presented at the 2nd Cocoa Revolution Conference in Ho Chi Minh City, Vietnam, on 11th March, 2016.

We discussed the supply chain risk represented by the global cocoa related consumer goods sector’s reliance on the production output of Ivory Coast and Ghana, noting that cocoa production, dominated as it is by small holder farmers (95% of total production) is one of the least evolved systems of agriculture in the world. Unlike the other large soft commodity categories, cocoa does not feature a significant professional production sector. With stock to use ratios consistently falling over this century and the cocoa price rising under demand pressure, there are real fears that supply deficits will impact over the next few years. In contrast to West Africa (72% of world production), Latin America (18% of world production) has the nucleus of a professional cocoa farming industry and unlike most of Asia, Latin America has a vibrant cocoa culture.

Please click for our presentation: Cocoa’s Latin Future – 2nd Cocoa Revolution Conference – Vietnam

Destruction by Chocolate

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To read our report click photo above.

ICCO Cocoa Market Outlook Conference

Hardman Agribusiness presented at the ICCO Cocoa Market Outlook Conference in London, 22nd September, 2015. We focused on the supply chain risk represented by the global cocoa related consumer goods sector’s reliance on the production output of Ivory Coast and Ghana, noting that cocoa production, dominated as it is by small holder farmers (95% of total production) is one of the least evolved systems of agriculture in the world. Unlike the other large soft commodity categories, cocoa does not feature a significant professional production sector. With stock to use ratios consistently falling over this century and the cocoa price rising under demand pressure, there are real fears that supply deficits will impact over the next few years. In contrast to West Africa (72% of world production), Latin America (18% of world production) has the nucleus of a professional cocoa farming industry and unlike most of Asia, Latin America has a vibrant cocoa culture.

Please click for our presentation: Latam Leadership – ICCO Cocoa Market Outlook Conference

A Taste For Cocoa – Messages From The Markets

Over the first 15 years of this century the leading chocolate confectionery listings have outperformed the S&P 500 by 3.5x and since 2013 they have marginally outperformed the commodity price itself. Meanwhile the only cocoa plantation to list on an international stock exchange, United Cacao Ltd (CHOC) has seen its share price rise by 173% since listing in December 2014 for a value of some $20,000/ha when only one third of the plantation is actually planted. Capital markets investors and commodities traders and investors appear to be linked by a strong liking for cocoa related investment and trading opportunities. During 4th  and 5th March 2015, Hardman Agribusiness presented A Taste For Cocoa (Messages From The Markets) at the CMT Cocoa Revolution Conference in Singapore.

Click to download: A Taste For Cocoa – Messages From The Markets

Future Harvest – 21st Century Jatropha

Future Harvest (see link below) introduces the four leading crop science companies engaged in the development and transformation of Jatropha. The plant has gone from the ‘miracle plant’ of late 20th Century to a plant associated with failed bio-fuels ventures in the first decade of this century, and now to a crop with significant potential importance for 21st Century Agriculture. When it first came to notice it was an entirely wild species; today it is undergoing systematic scientific development for diverse farming models and for its exceptional utility.

Please click here for report – Future Harvest – 21st Century Jatropha

Cocoa – Giant On A Pinhead

Some of the most valuable brands in commerce have secured the loyalty of their customers by exploiting a commodity first popular with the ancient cultures of Mesoamerica. Archaeological evidence from various sites across Central and South America reveals that regional cultures were using cocoa for making beverages as early as 1900 BC.

Today derivatives of the cocoa bean are found in confectionery with a global sales value that is expected to be in the order of $120bn in 2014. The chocolate confectionery sector has produced brands that are instantly recognised across the globe: Nestlé, Mars, Cadbury, Ferrero,
Lindt & Sprüngli and many more.

Click to download: Cacao – Giant On A Pinhead